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Imagine for a moment that you are the founder of a very hot start-up, weighing the public takeover bids of some of the world's largest technology companies.
What exactly do you want – aside, obviously, the tons of money, stock and glory that could happen to you?
This assumption appeared this week when Instagram co-founders announced that they were abandoning Facebook, which had purchased Instagram in 2012. Instagram was already a popular photo-sharing app when Facebook Inc. (FB) picked it up for a billion dollars. but he has since become the golden child of Facebook's wallet: a phenomenon for users, a gold mine for the advertisers money, and apparently isolated scandals that have affected Facebook in the last year. With more than one billion users, Instagram will generate $ 10.9 billion in revenue in 2019, according to an estimate from eMarketer.
Nevertheless, the founders of Instagram, Kevin Systrom and Mike Krieger (respectively CEO and Chief Technology Officer) reportedly ran into Facebook's direction with Instagram's management.
In a blog post, Systrom wrote that both "leave Instagram to explore our curiosity and creativity again".
A similar situation occurred a few months ago in April, when the founders of WhatsApp, Jan Koum and Brian Acton, suddenly left Facebook (and hundreds of millions of people in the capital not yet acquired), in party because of disagreements over encryption and confidentiality.
To be clear, it is not uncommon for founders to eventually leave a parent company after acquiring their business. But the highly anticipated departure of the two founders of Instagram highlights the often complicated calculation of selling a popular startup to a bigger monster.
Hale Boggs, partner at Manatt, Phelps & Phillips specializing in mergers and acquisitions, said that in most transactions, the founders do not necessarily have much leverage. "It's the golden rule: whoever has the gold, sets the rules," he said.
In venture capital circles, the "conviviality of the founder" generally means the desire to trust the founder's vision by guiding a start-up. In mergers – especially in cases where a visionary founder is solicited for his unique attributes or those of his company – factors other than money may come into play.
"Do you have a common vision of the future of the target company? Does the brand as it exists exist is there something that the acquirer would consider keeping, or is it more likely that she blend into her brand? " Boggs cited as an example.
Jamie Siminoff, founder of the smart home appliance maker, Ring, recently explained why his company had decided to go ahead with a public offer to buy Amazon.com Inc. (AMZN). (The e-commerce and cloud giant acquired Ring for $ 1.2 billion in April 2018).
"The most important thing was to see that they had joined the mission," Siminoff said. "When we really started talking seriously, we did really well, but they focused on the why, not the result."
Siminoff added that being able to continue the work he was doing, even with many more resources, was also a selling point. He mentioned that they also had discussions with Apple Inc. (AAPL) and others, although these discussions have never been serious.
Greg Schott, founder of Mulesoft, described a similar alignment by talking about the acquisition of $ 6.5 billion from his company by Salesforce in May 2018.
"When [Salesforce co-CEO Marc Benioff] and I met in February … he said we are starting to see the digital transformation as an industry, and I said we see ourselves as the engine of this industry, "Schott told a group of Investors at this week's Dreamforce Conference "Bringing business together seemed like a really amazing strategic fit."
Salesforce, in particular, has quickly assimilated some of its recent acquisitions into its product suite: Schott's Mulesoft has already been integrated with Salesforce cloud applications just months after the close.
As to what the founders really want, there is not necessarily a common denominator – other than compensation, of course. But Boggs added that in Silicon Valley there are some recognizable trends.
"Some founders see themselves as serial entrepreneurs, their mission is to create companies, sell them and move on to the next company," he said. "With [others]it's their baby and the work of their life, so in this context, even the notion of selling is really difficult. But if they come to this place – usually motivated by financial considerations or able to mobilize larger resources – they may want to be more selective about the buyer. "
In the end, in the case of Instagram, the vision of the founders may not have been compatible with that of Facebook.
"Building new things requires us to step back, to understand what inspires us and that it fits what the world needs, which is what we plan to do," Systrom wrote in his blog post. 39; farewell.
As they say, to the next.
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